UK 60% Marginal Rate Escape 2026/27: £100k-£125,140 Strategies
The 2026/27 Personal Allowance taper from £100,000 to £125,140: why it costs 62% with NI, and how pension, salary sacrifice and Gift Aid reduce it.
2026/27 taper at a glance
Taper starts (ANI)
£100,000
£1 of allowance lost per £2
Allowance nil at
£125,140
Personal Allowance £0
Income Tax marginal rate
60%
62% with 2% employee NI
Salary sacrifice cost
£0.38/£1
Take-home given up per £1 sacrificed inside the taper
The mechanism explained
The Personal Allowance of £12,570 (ITA 2007 s.35) is reduced by £1 for every £2 of adjusted net income above £100,000 (s.35(2)). The lost allowance is then taxed at the 40% higher rate. Each extra £1 above £100,000:
- Income Tax at 40% = £0.40
- Lost allowance: £0.50 × 40% = £0.20
- Total per £1: £0.60
- Plus 2% employee NI on earnings above the Upper Earnings Limit = 62%
Above £125,140 the allowance is nil and the marginal rate falls back to the 45% additional rate. The £100,000 to £125,140 band is more expensive per pound than the band above it. Scottish taxpayers pay Scottish rates on earnings, so their combined rate in the taper differs.
5 mitigation scenarios with worked figures
Employee in England, 2026/27 rules. Salary sacrifice costs come from our salary engine (Income Tax and NI). The Gift Aid row is Income Tax only.
| Scenario | Salary | Sacrifice | Gift Aid (gross) | ANI | Personal Allowance | Net cost to you | Relief |
|---|---|---|---|---|---|---|---|
| No mitigation | £110,000 | - | - | £110,000 | £7,570 | - | - |
| £10,000 pension salary sacrifice | £110,000 | £10,000 | - | £100,000 | £12,570 | £3,800 | 62% |
| £10,000 gross Gift Aid (£8,000 donated) | £110,000 | - | £10,000 | £100,000 | £12,570 | £4,000 | 60% |
| Sacrifice down to the threshold | £125,000 | £25,000 | - | £100,000 | £12,570 | £9,500 | 62% |
| Partial sacrifice | £115,000 | £7,500 | - | £107,500 | £8,820 | £2,850 | 62% |
What counts as Adjusted Net Income (ANI)?
ITA 2007 s.58 defines ANI. What reduces it, and what does not:
| Item | Keeps ANI down? | Notes |
|---|---|---|
| Relief-at-source personal pension contributions (gross amount) | ✓ Yes | ITA 2007 s.58 Step 3: the gross contribution is deducted |
| Gift Aid donations (grossed up at the basic rate) | ✓ Yes | ITA 2007 s.58 Step 2: £80 donated is a £100 gross gift |
| Salary sacrifice and net pay arrangement pension contributions | ✓ Yes | Lower pay means lower net income, so ANI falls too |
| Trade losses and qualifying loan interest | ✓ Yes | Deducted in calculating net income (ITA 2007 ss.23-24), Step 1 of s.58 |
| Employer pension contributions | ✓ Yes | Never part of your taxable income in the first place |
| Individual Savings Account (ISA) subscriptions | ✗ No | Not deductible from income |
| EIS / SEIS investment relief | ✗ No | A reduction of the tax bill, not a deduction from income |
| Venture Capital Trust (VCT) investment relief | ✗ No | Same: reduces tax, not ANI |
| Marriage Allowance | ✗ No | Not available to a higher-rate taxpayer receiving it |
The £100k childcare cliff
At £100,000 of ANI two things happen together for parents:
- Personal Allowance taper: 60% Income Tax marginal rate up to £125,140.
- Childcare support: Tax-Free Childcare (a 20% top-up worth up to £2,000 a year per child, £4,000 if disabled) and Free Childcare for Working Parents (30 hours a week in England) both stop if either parent expects ANI over £100,000. There is no taper. See our Tax-Free Childcare guide.
The High Income Child Benefit Charge is separate: it already equals the whole benefit at £80,000, so it does not change at £100,000. Pension contributions and Gift Aid that bring ANI back to £100,000 restore both the allowance and the childcare support.
Related guides + calculators
- £100k tax trap landing
- Pension contribution calculator
- Salary sacrifice 2026/27 guide
- Gift Aid higher-rate claim guide
- Tax-Free Childcare cliff strategies
- HICBC explained
- Auto-enrolment + employer contributions
- SEIS / EIS investor relief
- Max pension contribution calc
- Marriage Allowance calc
- High earner planning checklist
Frequently asked questions
What is the UK 60% effective marginal tax rate?
Between £100,000 and £125,140 of adjusted net income the Personal Allowance falls by £1 for every £2 (ITA 2007 s.35(2)). Each extra £1 is taxed at 40% and removes 50p of allowance that is then taxed at 40%: 60% Income Tax, 62% for an employee paying 2% NI. Losing the whole £12,570 allowance costs £5,028. These are England, Wales and Northern Ireland figures; Scottish bands differ.
What counts as "Adjusted Net Income" (ANI)?
ITA 2007 s.58: net income, less grossed-up Gift Aid donations and the gross amount of relief-at-source pension contributions, plus back any trade union or police organisation relief. Salary sacrifice reduces pay and so reduces net income. ISA subscriptions, EIS, SEIS and VCT relief and Marriage Allowance do not reduce ANI. ANI also drives the High Income Child Benefit Charge (ITEPA 2003 s.681B) and the £100,000 limit for Tax-Free Childcare and Free Childcare for Working Parents.
How does a pension contribution escape the 60% trap?
A £115,000 employee who sacrifices £10,000 has ANI of £105,000 and a Personal Allowance of £10,070 (not the full allowance). On our salary engine take-home falls by £3,800 for £10,000 in the pension. Paying the same £10,000 gross as a relief-at-source personal contribution costs £8,000 from net pay, and the Self Assessment claim returns about £4,000, a net cost of £4,000: no NI is saved.
How does Gift Aid escape the 60% trap?
The grossed-up gift is deducted from ANI (ITA 2007 s.58 Step 2) and extends your basic rate band. On £108,000 of salary, donating £8,000 (£10,000 gross) brings ANI to £98,000 and restores the full allowance. Your own Income Tax falls by £3,600, so the charity receives £10,000 for a net cost to you of £4,400. Under ITA 2007 s.426 you can elect to treat a gift as made in the previous tax year, on or before filing that year's return and no later than its 31 January deadline.
Does the taper apply to all sources of income?
Yes. ANI is built from all income: salary, trading profit, rent, savings and dividends. Take £5,000 of dividends on top of £100,000 of salary: the dividends are taxed at 35.75% above the £500 allowance (£1,609), and the £2,500 of lost allowance adds £1,000 of tax on the salary. Capital gains are not part of net income, so they do not affect the taper, although they are taxed under the Capital Gains Tax rules.
What happens above £125,140?
The allowance is already nil, so the marginal rate on employment income falls to 45% Income Tax plus 2% NI, 47% in total, below the 62% inside the taper. £15,000 of extra salary above £125,140 costs £7,050; the same £15,000 inside the taper costs £9,300. Dividends above £125,140 are taxed at the 39.35% dividend additional rate.
How does the High Income Child Benefit Charge interact?
The charge is 1% of Child Benefit for every £200 of ANI above £60,000, reaching 100% at £80,000 (ITEPA 2003 ss.681B-681C). For two children that is £2,337 a year at 2026/27 rates. At £100,000 the charge is already the whole benefit, so a contribution that only brings ANI down to £100,000 does not reduce it. What it can protect is Tax-Free Childcare and Free Childcare for Working Parents, which stop if either parent expects ANI over £100,000.
Are SEIS / EIS / VCT investments useful in the taper?
They reduce the tax bill but not ANI, so they do not restore the Personal Allowance or protect childcare support. Income Tax relief for 2026/27: SEIS 50% on up to £200,000, EIS 30% on up to £1 million (£2 million with knowledge-intensive investment), VCT 20% on up to £200,000. On £108,000 of salary, a £10,000 pension sacrifice costs £4,200 of take-home; £10,000 in EIS gives £3,000 of relief while ANI stays at £108,000. These are high-risk investments.
What about employer contributions and other sacrifices?
Employer pension contributions are not part of your taxable income, so swapping salary for an employer contribution keeps ANI down. A sacrifice cannot take cash pay below the National Minimum Wage and needs your employer's agreement. Cycle-to-work is outside the optional remuneration rules, so a £1,000 sacrifice inside the taper saves about £620. Share Incentive Plan partnership shares are bought from pre-tax salary (up to £1,800 or 10% of income); SAYE savings come from net pay and do not reduce ANI.
How do I check my ANI on Self Assessment?
ANI is not a box on the return: HMRC works it out from the income, Gift Aid and pension entries, and the tax calculation shows the Personal Allowance you were given. Employees outside Self Assessment see the outcome in their tax code or a P800 calculation. Contributions count for the tax year they are paid in, so one-off contributions must be paid by 5 April. A Gift Aid gift can be carried back one year under ITA 2007 s.426.
What if I consistently earn over £125,140?
The allowance is gone, so pension contributions save tax at 45% (plus 2% NI by salary sacrifice) rather than 60%. Watch the tapered annual allowance: if threshold income is over £200,000 and adjusted income over £260,000, the £60,000 annual allowance falls by £1 per £2, to a minimum of £10,000. EIS, SEIS and VCT relief is unaffected by the annual allowance.
What is the angle for couples at the threshold?
The taper is applied to each person separately: two people on £80,000 each are both below it, while one person on £160,000 has lost the whole allowance. Income from property held jointly by spouses or civil partners who live together is split 50/50 by default (ITA 2007 s.836) unless a declaration of unequal beneficial interests is made (s.837, form 17). Marriage Allowance only helps where the receiving spouse's income is no more than £50,270.